First Round Capital is raising a $75M - $100M fund… the firm’s backed firms like Stumble Upon and Video Egg…
Interesting to see that they’ve also passed up on (and partner Josh Kopelman sheepishly/proudly admits to it, too…) both Right Media ($800M exit to Yahoo!) and, hmm… YouTube ($1.65B exit to Google).
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WatchMojo NewsletterExactly why is Facebook pushing me to download IE7?
Yeah, I think so too: MSFT got the Facebook deal..
It’s nice to see that despite the growth in eyeballs, people realize that social networking is a hypester phenomenon amongst marketers. They won’t really touch it, and compared to the enormous web advertising pie, it will always remain a rounding error. From CNET:
Social-networking sites will enlist 230 million active members by the end of the year and will keep attracting new users until at least 2009, according to an analyst report. But investors are still wary–and for good reason, as long-term growth is by no means certain.
A report by U.K.-based Datamonitor, titled “The future of social networking: Understanding market strategic and technological developments,” predicts that growth in the number of people signing up to be a part of the cultural phenomenon, which has put the likes of Facebook on the map, will peak by 2009 and plateau by 2012.
It also suggests revenues from social-networking services will hit $965 million this year, swelling to $2.4 billion by 2012.
Growth in the membership of social-networking sites varies dramatically by region, according to the analyst, which predicts Asia Pacific will account for 35 percent of global social networking users by the end of this year, followed by EMEA (28 percent), North America (25 percent), and the Caribbean and Latin America (12 percent).
Admittedly, this does beg the question then, why does Facebook command a whopping valuation? Because, like MySpace, Facebook is a social phenomenon, literally a one-in-a-million occurrence. But for all of the remaining wannabe has-beens, this report should be a wake up call: build an actual company!
Paid Content reports that video ad network Bright Roll has raised $5M in Series B. I interviewed the firm’s CEO Tod Sacerdoti some time ago, to read the post, click here.
This comes on the heels of YuMe’s $9M round this week, which in turn came on the heels of the massive Scanscout investment by Time Warner Investments… which itself was a knee-jerk reaction to Video Egg’s Series D round (nope, not a typo, that is D as in dude?). See my interview with Video Egg’s CEO Matt Sanchez here.
Last year (2006) web video sales were $439M, 2007 sales will be $750M. That is within the overall $17B online ad market. Of course, if investors are getting giddy, it’s not for the now and here but the tomorrow and maybe. Online video estimates have been mushrooming of late, see the growth in forecasts here:
An estimate of the online video ad market for 2009 - set in 2004: $657 million | Source.
An estimate of the online video ad market for 2009 - set in 2005: $1.5 billion | Source.
An estimate of the online video ad market for 2010 - set in 2006: $2.3 billion | Source.
An estimate of the online video ad market for 2010 - set in late 2006: $3 billion | Source.
An estimate of the online video ad market for 2011 - set in 2007: $10 billion | Source.
Some stats on Brightroll, then some thoughts on the space:
- in August 2007 Brightroll issued a press release saying it had served its 500 Millionth video ad, so presume the actual 500 Millionth stream was done sometime in July, 2007.
- its history page claims to have done 800M streams since the company launched, since we’re in October, I presume that was as of September 2007.
The company was founded in June 2006, according to founder’s Tod Sacerdoti’s Linkedin profile.
If you work out the math, that means it did 500M streams pretty much in one year, which is very robust (41M streams per month, assuming straight math OR 1.36M streams per day, which admittedly does not sound like a lot, but the “straight math” is not a good metric, frankly).
But since July 2007 and September 2007, streams grew from 500M to 800M, or 60%, if you believe the PR spin. Provided it’s true, that is a very strong growth trajectory and implies the company took advantage of the growth in streams to raise some dough. Good for Tod and his team.
Competitive Landscape
By way of comparison however, Video Egg claims 750M streams per month, but Video Egg’s number is that of content streams, whereas Brightroll only serves ads… Video Egg, of course, has done Series A, B, C and D and has well over $30M in funding… (by the way, First Round Capital, the Midas Touch weaving angel fund that backed Video Egg is raising $75M - $100M so hit them up if you’re looking for funds).
From File Networks to Ad Networks
Last year you saw VCs investing in Series A rounds for video file sharing sites. Now that is rare, with VCs investing in Series B, C and D rounds. Think Daily Motion, Veoh, Metacafe. The same is happening with the video networks.
When the Music Stops, Will Everyone Succeed?
No. I’m not sure of all of the file networks will survive, but the few ones that thrive will be just fine… the same will apply to the ad networks in video.
History repeats itself, amongst display banner ad networks, indeed Doubleclick, Fastclick, Valueclick, Blue Lithium, 24/7 Real Media and Right Media all hit paydirt, but it’s worth noting that there are hundreds of ad networks, many fizzled, and many were bootstrapped. Tribal Fusion, for example, was bootstrapped and remains private.
With video ad networks (and file sharing networks), the VCs are out in droves, which means that the stakes are higher. While some of these players will invariably be successful, I expect to see considerable bloodletting before the wine flows…
Risk Factors
What makes the ad network particularly challenging, frankly, is that a lot of the money being raised and spent will be spent on models, technologies and formats that might become redundant. That’s one risk that I’m not sure VCs are properly assessing because Video Egg for example seems to have changed models, strategy, tactics and platform a dozen times… the flip side to this is that some of these firms are in fact quite different and complimentary, now… but as the model develops, friends will become foe and new competitors will creep out of the woodwork.
Second, and this is key, is the fact that search technology is very much early stage when it comes to video, but as that develops, then ad networks will probably have to co-exist with search engines that will become gatekeepers between users and video content. Moreover, even search firms like Blinkx suddenly become chameleons and become file sharing / hosting networks, too: Blinkx the search engine for example is a search source our video meta search MetaMojo.com queries yet Blinkx the video file host is one of the many distribution outlets for our web video unit WatchMojo.com.
Third, there’s the file networks. The idea is that file networks will coexist with these ad networks, but the truth is that with VCs backing these ventures, few will want to share the pie. Many will want to own the platform and that means that the file networks will end up fighting aggressively with the ad networks, in fact, some are one and the same: Video Egg is both a file sharing platform and an ad network…
Fourth, TV companies currently are defenders of a $75B TV ad market. Naturally, the increasing valuations in video startups imply that a good chunk of that market flows online, and that will happen. But to think that TV companies will act like sheep and let Web’s second wave of startups focused on video do what Web’s first players did to print companies, we’re all kidding. Let’s face it, print companies founders are long gone and in their place were managers who got lax. Conversely, TV companies are still largely run by the people who built those companies (Sumner Redstone and Rupert Murdoch being two great examples). As such, TV companies won’t go down without a fight. Then again, that is also what is driving some of the decisions, global agency WPP invested in Video Egg, Time Warner backed Scanscount, and so forth.
Underneath the elbow-rubbing is a fierce showdown to own the video advertising market, the biggest market of them all.
There are many other risk factors, frankly, such as whether user generated content will end up helping or hurting the shift of ad dollars from TV to the Web, net neutrality, piracy and what not… but, well, I do have a call to take in 10 minutes…
The stakes are just rising.
See our comprehensive posts on the online video market here:
- Web video will become larger than search ads?
- Video is a $150B market cap opportunity by 2011?
- Video bubble moving from file sharing networks to ad networks?
Fred Wilson has an interesting post on saying NO as a VC. I think it’s even more important to manage the loaded N word in business when you’re an entrepreneur. As an entrepreneur, you want to build the baddest (in a good way), biggest, boldest company imaginable. Invariably, it means taking risks and having an open mind.
But, you can also kill your company by being too open minded and saying YES to everything. As a stateman, you always want to please and say YES to people because you aim to please… but truth is, once you start a company, you have to be very careful when you say YES. In fact, you should always defer saying yes until you mean it, which is obvious but not easy. I’ll follow up this post at a later date with managing the word YES because I’ve learned that with all stakeholders, once YES is out there, there’s really no retracting.
However, if you say NO, there’s always the chance of going back and saying YES if the conditions change, you have the resources etc.
The main areas where you need to manage the Yes/No issue are:
- Growth Plans and Internal Discussions
- External inquiries and proposals for new partnerships
- Personal demands and requests
- Things pertaining to culture, perks, environment.
Man, I wish I could say YES to everything, but no one wants to be a YES man, after all… Jokes aside, I think that is the ultimate entrepreneur dilemma…
Raise your hand if you’re a TV executive. Great, thanks. I see many of you are.
Now raise your hand if you’ve got a clue what to do regarding the Web. Hey, where did everyone go?
Media Malaise Reported in Mainstream Media
NYTimes has an interesting piece about how media firms are starting to take risks by acting like VCs:
NBC and another division of General Electric announced a $250 million investment fund last spring. There are venture investments from the Warner Music Group, the Hearst Corporation, Reed Elsevier, Comcast, The New York Times Company, Universal Music, Reuters, ABC and Disney and Sports Illustrated.
Apart from acting like VCs and investing in tech and new media startups, media companies have been taking greater and greater risks with acquisitions, too, in the process of driving up asset prices.
Some recent deals, such as the one where Hearst buys UGO for $100M, is just one example. As consumers ebb away from offline media to online, traditional media companies are starting to take bigger risks.
This week, Discovery Networks plunked down $250M for Atlanta-based How Stuff Works.
Let me say right off the bat that I absolutely love Discovery’s programming. In fact, when we at WatchMojo.com produce video segments such as the Wonders of the World (Ancient, Modern, Natural) or the feature on the planets and our solar system, you can smell the inspiration from light years away.
Let me also repeat that I like HSW and respect everyone there, even having met a few of the folks in person. I’m extremely happy for them and their big payday.
But it must be said, the deal is odd in that Discovery wants to funnel their hundreds of hours of programming from TV to the web via HSW. I see a few problems with that.
First, that sounds great in theory but that’s awfully akin to shoving ten pounds of meat in a one-pound bag. HSW, despite its great brand and content, has 5-10M uniques (US/global) only. To pop up in the Top 10 or 20, if not 50 sites, you need many more uniques than that… to move the needle, Discovery needed a bigger play, in fact.
I spent some time looking at Discovery Communications financial statements, it’s a $7.75 Billion market cap company, did $688 Million in revenue in 2006, flat from 2005, when it did a tad more at $694 Million. You don’t need a math degree to realize that flat revenues are not welcome and unless the company changes course it will suffer the same fate as print companies: a shrinking business, as users move online. But was paying $250M for one content company that is text-based the best thing to do?
Yes, would argue the M&A folks.
“We’re way behind in new media and digital,” says CEO David Zaslav, who has shaken up Discovery since taking over in January. “I don’t think we win just by building vertically.”
It helps that HSW’s search engine optimization is strong, the theory, then, is that as users land on HSW, they will now see video from Discovery, which the merged entity can sell ads against and make that $694M go up, right?
Video Ads vs. TV Ads
Well, that’s the game plan, but while TV ads account for a $75B market in the US alone, web video ads did $439M last year, will do $750M this year, and are pegged to do $3.1B in 2010 and $4.3B in 2011, with worldwide video revenue online crossing $10B by 2011…
As you can see, the entire online video market did less last year that Discovery booked in all, and will do slightly more this year. Video ads online will only take off in the next 18 months, but it’s started already. But this begs the question: how much will go to Discovery/HSW, time will tell. Clearly, the planners within Discovery felt that at present time, without HSW, the answer to that question would have been pretty darn close to nil. With HSW, the argument is, it should be something, hopefully something material.
But when you consider that YouTube - the largest video site in the world, far and away - only did $15M in 2006, or 3.4% (out of $439M in all last year), you have to wonder if plunking down $250M for a site with 5 to 10M uniques is money well spent (comScore shows HowStuffWorks with 3.9 million unique U.S. visitors in September, up 74 percent from a year ago, and with 18 million page views, up 40 percent).
Of course, it should be added that Discovery’s digital team is now led by former NBC executive David Zaslav, so the notion of remaining in full control of their content and distribution channels is expected, but it’s not the trend online.
Property vs. Network
YouTube’s explosive success (we ranked it the most explosive startup ever) was largely due in part to embedding video. Of course, when you don’t own the rights to the video, you don’t care where it lands. But if you own the content, surely you care where it ends up, so you want to be in control of the player and the advertising revenue attached to it, once the market for web video ads crystalizes.
Viacom Kills TV Business?
That’s why, I guess, it’s not a surprise that this week another media company did something interesting: Viacom decided to put the archive of Jon Stewart’s Daily Show, online, on their own site. From Paid Content:
As to why this made sense: “People should be reacting to ‘The Daily Show’ on its own site…God bless them doing it everywhere else, but this should be the epicenter of it,” said Erik Flannigan, EVP of digital media at MTV Networks, in a THR story.
The site will be ad-supported: LAT says designers have been experimenting with ads that appear for two or three seconds at the start of a clip, recede, then emerge briefly from a corner of the picture like a network-TV promo while the video continues playing.
Of course, not all strategies will pan out: either folks will go directly to Dailyshow’s website or to aggregators like YouTube, right? Well, that’s exactly what Rich Greenfield, the analyst with Pali Research wrote on his blog
“While there may always be a place for content aggregators, we believe the ease of going directly to content-focused sites such as The Daily Show and the ease of a Google search for content makes it hard to understand the value of the entertainment or television sections of AOL.com, Yahoo.com or MSN.com.
I work with content aggregators, we use them as additional distribution outlets, so naturally we wish them success… but you don’t need to be a genius to see which ones will remain relevant and which ones will flop. I can see, day in, day out, how many people watch our videos on each network. With 2,500 videos (4,000 if you count everything we’ve filmed but yet to publish), I have a unique dashboard on how each video aggregator is doing and growing, and Pali’s Greenfield is not wrong.
The problem is, I’m not sure if Viacom’s desire to retain full control of the content makes sense. Alternatively, CBS has taken the opposite strategy, by striking non-exclusive deals with everyone and anyone. Its reach has soared as more eyeballs have access to their content, but time will tell if the strategy pans out when ad dollars really shift to video advertisement online. Will CBS’ strategy prove to be the better one, I don’t know… we shall see.
What about the 800-pound Gorilla, Google?
Of course, in a certainly unrelated move, Google introduced a content ID protection tool at around the same time they start running ads alongside content.
But, I’m sure that is just a massive coincidence, right?
Who Will Win the Online Video Ad Sweepstakes?
Google commanded 40% of US ad dollars in the first six months of 2007, it paid out over $1B in Q2 alone to publisher partners, sure, but the point is at the starting point, Google has the lead.
It also owns YouTube, the biggest ecosystem of web video content and eyeballs in the world. So while I think media companies have fantastic franchises, assets, and upside, I also fear that they’ve been suckered into a game of who can most aggressively leverage the Web, which for a media company that relies on a $75B US TV ad market, means that their businesses are going to shrink quickly as consumers and ad dollars flow to the Web.
Of course, traditional media companies will never fully use the Web as a distribution outlet, they’ll use it as a promotional outlet because the ad market is tiny online while it will remain considerable on TV. As such, the notion of giving users a bit but not all will help the shift of dollars to the Web, but ultimately, in this context, moves by Viacom and Discovery really only accelerate their businesses becoming smaller.
After all, as I’ve written frequently, US advertising (total) is a $250B market, only $17B was spent online… but marketing remains uber-ineffective… as marketers wise up and shift more money online, I think that the total pie might not really grow all that much… at least not in the US, in some offshore markets, but that’s a separate post for a separate day.
Henry Blodget, whose contributions to the blogosphere I really enjoy reading, has definitely reinvented himself (well, not quite, since he remains true to his journalist meets analyst role, but I digress). What I mean is that he’s repositioned himself in the sense that he’s gone from staunch bull of the Web’s first era to someone who questions the robustness of the Web’s current era of prosperity. While I agree with some that some of his posts tend to become too Armageddon Day-ish, I welcome the balanced view he represents. Mainly, I think at a time when most bloggers just rehash posts, adding a layer of deep analysis is welcome and something we take pride in doing ourselves at HipMojo.
With that being said, it’s interesting to note, that his Web 1.0 nemesis/counterpart at Morgan Stanley, Mary Meeker, has adopted a negative outlook, too, reports Venture Beat. Truth is, she is actually very bullish on many items, but she does ring a few alarm bells for the outlook of the US tech industry, one of the few remnants and vestiges of growth and virility in an increasing weakened economy and landscape. See her somewhat doomsday scenario in her report, here.
